The yuan catches on, while the dollar grows smaller

Oct 19, 2017

Could the world really start trading oil in yuan? It could be a possibility if China can coerce Saudi Arabia to be the first.

Chief economist and managing director at High Frequency Economics, Carl Weinberg, believes that: “Beijing stands to become the most dominant global player in oil demand since China usurped the U.S. as the ‘biggest oil importer on the planet.’”

Weinberg continues that Saudi Arabia has to, “pay attention to this because even as much as one or two years from now, Chinese demand will dwarf U.S. demand.”

If Saudi does indeed make the switch it is likely the rest of the oil market will abandon the U.S. dollar, as there has been talk by nations opposing the dollar as the world’s reserve currency. China has been at the root of many of the ideas, in fact Russia and China have increased efforts to trade in a non-dollar environment by acquiring physical gold. China has also wanted to form a currency with Saudi Arabia for oil trade. Currently, Saudi accepts all payments for its oil export in dollars, but as China overtakes the U.S., it seems less likely that China will continue to pay in dollars.

Weinberg also commented that, “Moving oil trade out of dollars into yuan will take right now between $600 billion and $800 billion worth of transactions out of the dollar… (That) means a stronger demand for things in China, whether it’s securities or whether it’s goods and services. It is a growth plus for China and that’s why they want this to happen.”